Future Cities: Is the path to future growth through smart...

Future Cities: Is the path to future growth through smart infrastructure?Part of the EY Building Future Britain campaign

EY Infrastructure: ey.com/uk/infrastructure

Join the debate at @EY_UKInfra

#BuildingBritain

We are on track for a world in 2050 of more than nine billion people, 66% of them living in cities. For cities to adapt and become resilient we need to design smart, connected and sustainable infrastructure to accommodate this global growth.

Building Future BritainBritain is facing a decisive moment in history. It’s the first time in 200 years that the UK has had a proliferation of infrastructural megaprojects in the pipeline that will have a longer term impact on our country. With the Government’s pledge to increase capital spending on infrastructure to enable us to compete on the international stage, the strength of our economy rests on making the right long-term investment decisions now. Today, we have the opportunity to leave our mark on the infrastructure landscape and create significant economic, societal and cultural benefits for future generations.

Introduction ............................................... 2

Cities — the heart of our changing world ..... 4

Addressing the challenges .......................... 6

A smart approach to success ..................... 8

Taking action ........................................... 10

Meet the EY team .................................... 12

Contents

Future cities — Is the path to future growth through smart infrastructure?2

Introduction

The megatrends of the urban world are placing cities and their infrastructure under increasing pressure. With a burgeoning global population, the UN predicts city living will reach 66% by 2050. Cities are growing in size and number with countries, for example China, developing two mega cities comprising 100 million people by 2030. However, what does this mean for the future cities of the UK?

Certainly with devolution comes greater power coupled with a need for strong leadership and governance. UK cities need to collaborate to achieve critical mass to compete on the world stage. To enable the development necessary, innovative financing and citizen empowered delivery are key. What is also apparent is that infrastructure is an essential enabler to achieve economic growth in cities.

The issue it seems, is not the adoption of innovation or technology but how they can benefit the increasingly demanding urban citizen. This is key as the Internet of Things (IOT) is stretching boundaries into the Internet of Cities that provide a strong sense of culture and community. Technology is driving demand for timely, relevant and accessible services across and between cities, placing the citizen at the heart of that relationship. Innovative mechanisms are also required to both fund and finance the next wave of city infrastructure investments, and conventional ownership structures will be disrupted by on-call, shared service delivered demands from users.

“EY brought together cross-sector regional leaders to help scope the Digital Birmingham and HS2 Digital Futures Prospectus. Through their expert facilitation and ability to capture the key opportunities issues, we have been able to develop a vision and key themes that matter to people and businesses which will ensure that benefits of HS2 reach beyond Curzon Street and into the wider communities as well as support sustainable development into the future. Given the pace of change and the rapid evolution of digital technologies, EY has provided expertise and resources to take forward what is a complex and challenging journey that requires a range of capabilities. EY’s input, skills and facilitation has been invaluable and I believe that many of the opportunities and the learnings in developing this prospectus through our engagement with them will be replicable across other regions.”

Raj MackHead of Digital Birmingham

These stresses are exacerbated by a changing climate (physical, geological, economic, political and disruptive), where the resilience and sustainability of urban systems will be robustly tested going forward. There are, however, opportunities for new ways of managing the urban environment and infrastructure through another megatrend of our generation — digital. Therefore challenges need to be addressed by considering the interface between human, the physical built environment and digital assets.

To help future cities achieve their ambitions for a resilient future, EY are proud to be a global platform partner of the Rockefeller 100 Resilient Cities Initiative, which currently includes five UK cities.

Smart and resilient infrastructure considerations at a glance

Innovation, machine learning and robotics will disrupt business, service delivery and infrastructure.

Cities are competing for talent and finance. They need to be places people want to live, work and play.

Cities are increasingly physically and digitally connected, both within and between cities. Infrastructure

needs to support the effective and efficient movement of people and goods.

Cities are growing in size and number. This puts increasing pressure on infrastructure and services, driving innovation and agile approaches to infrastructure design and use.

Devolution and partnership will

be the new governance model,

unlocking regional local growth opportunities and faster delivery

models, supported by innovation

in Government by ‘City Hall’

thinking and oversight.

The rise of digital and mobile will generate more data, different demands and different ways of interacting with cities and infrastructure.

Outcome-based problem solving to determine the best and most resilient

solutions to deliver significant value and to attract funding and financing partners.

A focus on citizens and the user experience to ensure solutions are relevant, achievable, sustainable and deliver benefits.

Long-term planning for resilience against social, economic and environmental stresses.


UK cities are growing, with figures from the Office for National Statistics (ONS) showing an average 3.4% increase between 2011–2015. London and Bristol recorded the highest growth of 5.7% and 4.5% respectively.1 Alongside this growth, citizen’s movement across cities is changing. For example, in 2014, smartphone travel applications were being used by over 70% of Londoners.2

Whilst many of the technologies that will power future UK cities and infrastructure are still emerging, disruption is increasing the pressure on cities to become smart and resilient. New ideas and providers are accelerating the pace of change, challenging traditional business models and demanding new approaches such as:

► New ‘future-proof’ technologies based on open technology protocols and agreed standards to encourage system and network integration. They foster continuous improvement, replicability and scalability, as well as increased technological, system and supply chain resilience.

► New design and delivery approaches that take a whole-system, whole-life approach to city master planning, development and operation. They put changing human behaviours, demands and civic priorities at the heart of technological and network creation.

► New frameworks and mechanisms for harnessing the power of data, the value of analytics, managing risk and protecting interconnected systems from being compromised, particularly in strategically important sectors such as utilities, transport and infrastructure.

However, the evolution of the digital enterprise also presents significant challenges, including new competition, changing customer engagement, privacy concerns, and cybersecurity threats.

In the private sector, infrastructure operators, energy and utilities providers, transport operators, real estate developers, and telecommunications carriers are all developing ways in which

Cities — the heart of our changing world

$15–25tn Funding gap

connected, intelligent networks can drive smoother, managed interactions through and around cities. These:

► Enable the optimisation of people, transport and logistics flows

► More effectively integrate supply chains

► Can help lower emissions

► Improve sustainability and return on investment

Investment in smart infrastructure will provide greater opportunities for cities to become truly resilient and support economic growth. Our Autumn 2016 UK Attractiveness Survey identified that investment in infrastructure has remained a top priority for foreign investors, with 11% stating rail infrastructure should be of high importance for the UK Government.3

In order to harness these benefits there must be effective planning, policy, and sustained investment in all types of infrastructure.

All cities compete for talent and funding and a well-functioning social and physical infrastructure ecosystem can support that. Cities should strive to deliver a sense of place, support a high quality of life and engage a vibrant community. Local and national policy-makers, along with other senior stakeholders, will need to work closely together to plan, build and govern more sustainable cities. Cities will have energy-efficient buildings, reduced waste and rely heavily on renewable energy sources and energy efficient transportation systems all enabled by digital.

Global rapid urbanisation will require US$60tn to US$70tn in investment between 2012–30. However, there is an estimated funding gap. Under current conditions, only US$45tn is likely to be invested.

Source: 1 ONS, Population dynamics of UK city regions since mid-2011 — October 2016 2 EY All Change Please, 2016 3 EY's UK Attractiveness Survey, Autumn 2016

Future cities — Is the path to future growth through smart infrastructure? 5

Responding to our changing worldThe megatrends of our changing world are impacting our cities, creating pressures, but also generating opportunities. It is how a city addresses these challenges that will determine how successful it is.

Digital future

Entrepreneurship rising

Global marketplace

Urban world

Resourceful planet

Health reimagined

Technology is disrupting all areas of enterprise, driving a myriad of opportunities and challenges.

Entrepreneurship around the world is growing, driving the need for more supportive ecosystems.

Economic power continues to shift east and south, driving new patterns of trade and investment.

Effective infrastructure investment and sound planning will make future cities competitive and resilient.

Growing demand and shifting supply are driving innovation in the energy and resources space.

Technology and demographics converge to drive a once-in-a-lifetime transformation.

Devolved governance models

UK cities are moving to a more devolved status, unlocking local growth opportunities, faster delivery models and allowing innovation at the city level.


Economic growth, improved living standards, innovation and attractiveness within and between cities

Responding to a changing environment, fluctuating markets, cybersecurity and climate change

Long-term planning for sustainable growth, integrated systems, stakeholder management and controlled growth

► A more resilient city

► Better living conditions

► A more efficient city

► A healthier city

► A more competitive city

► A better connected city

► A safer city

► A more attractive city

► A people-oriented city

Different cities have different challenges. Whether they are legacy cities dealing with aging infrastructure, new cities planning for the future or transitioning cities buckling under the pressure of urbanisation and growth. Cities and city regions

will need to prioritise their needs, focus on outcomes and plan for long-term sustainable development. Investment in resilient infrastructure is key.

In addressing challenges, a city should consider three key principles. These can help focus decision-making and prioritise action.

City challenges Outcomes

Remaining competitive

Building resilience

Managing growth

Funding and finance, programme definition outcome prioritisation, programme and benefits delivery

Ensuring delivery

Service delivery, policy and administration, and resource management

Prioritising efficiency and governance

Resilience

Decision-making based on long-term planning for resilience against social, economic and environmental stresses

Outcomes

Outcome-based problem solving to determine the best solutions to deliver significant value

People

A focus on citizens and the user experience to ensure solutions are relevant, achievable and deliver benefits

Addressing the challenges


What is the best way of balancing social, economic and environmental needs?

How do cities know which issue to address and how to prioritise action?

Determining solutionsSolutions to the many challenges that cities face can be determined by considering the following:

Three solution principles

► Social, environmental and economic outcomes

► Connectivity

► Citizens; users and society

Solutions

► Sustainability

► Affordability

► Innovation

Aligned, funded, additive and successful projects

Adopting this approach means that projects and investment are focused where significant benefit can be delivered. Importantly, where accountability and value for money is a key objective for cities, demonstrating the benefits to citizens and stakeholders is critical.

Sustainability

How do you create solutions that are socially, environmentally and economically sustainable?

► Is infrastructure resilient to the impacts of climate change, cybersecurity and terrorism?

► Have the health and safety, including labour and human rights protection, been considered?

► Can you measure the total value (social, environmental and economic) of projects?

► Have you considered what opportunities devolution offers?

► What are your funding challenges and have you explored private sector partnership?

► Do you fully understand the tax opportunities and how these can be used to fund investment?

Affordability

How will projects be funded and financed? What is the business case for investment, how can you demonstrate the benefits and total value?

► What does big data mean to you and how do you use it to drive decision-making?

► What are the opportunities and risks from digital and the Internet of Things?

► How do you harness the power of digital and technology and tap into emerging entrepreneurial ecosystems to catalyse growth and improve citizen experiences?

Innovation

How do you harness the power of digital and technology to catalyse growth, manage systems and improve citizen experiences?


A smart approach to success

The challenges city leaders face around funding and financing and finite resources means projects need to be prioritised and benefits enhanced. Whilst a holistic approach should be considered, in order to deliver solutions, a pragmatic approach is required. We believe there are three key essentials to success:

1. Break it downFocus projects around the different physical and social infrastructure elements but understand the connectivity and dependencies so that benefits can be maximised.

2. Focus on the citizenConsider citizens and businesses as ‘users’ of the city and infrastructure, and focus solutions around addressing their needs and demands. Engagement is key.

3. Embrace innovationConsider the opportunities from digital and how new commercial models can be used to drive innovation and entrepreneurism.

1. Break it downCities are complex ecosystems of people, business and buildings with infrastructure binding them together. Infrastructure investment is critical in catalysing economic growth, sustaining competitiveness, and the strategic positioning of a city and the complexity of such can be overwhelming when deciding what to prioritise and invest in. Whilst a comprehensive approach is needed to understand the challenges, consideration of solutions and breaking down the web of elements into broad groups of physical and social infrastructure can be beneficial.

The elements are interlinked however focusing on specific elements results in benefits being identified and projects prioritised accordingly. A programme of interventions and investment can then be established, a roadmap developed, and projects delivered over time. Progress can be made in incremental stages delivering cost savings, benefits and increased value which can then be reinvested into future projects. This continuous improvement cycle is an important factor in demonstrating to citizens and communities the value of the programme and engaging them in further change.

Smart city and infrastructure elements

Administr

ation and

Inno

vatio

n ec

onom

ic

Security Education

Connected services

Health carego

vernance

deve

lopm

ent to inhabitants

Smart cityinfrastructure

Social infrastructure

Physical infrastructure

Built environment ► Buildings ► Public spaces

Mobility ► Transport ► Ticketing

Power and utilities ► Energy ► Water ► Waste

Communications ► ICT ► Equipment


City governments are well placed to drive this holistic approach as direct providers of services, guardians of place, and as policy makers. However, there is also a clear role for the private sector in delivering, operating, and maintaining social and physical infrastructure hence boundaries are becoming increasingly blurred and there is a strong need for greater collaboration and engagement.

2. Focus on the citizenCitizens and communities are users of infrastructure and ultimately cities. Focusing on their needs and demands will help prioritise investment. Indeed, engaging citizens in identifying the key issues and co-creating solutions to those problems is key. The use of digital can be particularly effective in this however strong stakeholder engagement and management is needed. The complex web of city and infrastructure elements is echoed by the number of stakeholders that need to be identified, engaged, and managed.

A focus on users is also helpful in determining solutions, as these can be framed around a customer journey — outcomes are based on what communities want and need, and projects based on the best way of delivering those outcomes with infrastructure and services determined accordingly.

Citizen engagement and effective communication is a key enabler to help secure the necessary buy-in and acceptance of change. Indeed, if citizens are fully engaged they can help own that change and be advocates for the city and the programme it is embarking on.

3. Embrace innovationOur world is changing and innovation needs to be embraced. New technology, delivery solutions, and business models need to be considered. Data analytics can be used to drive effective decision making but there are key questions around who owns the data, what the value of the data is and are there privacy implications. The challenge therefore is in understanding how to embrace digital innovation and also to ensure it is effectively governed. A clear strategy and governance framework is therefore required.

Innovation should not be restricted to digital and technology — it should apply to all aspects of planning for, delivering and operating city infrastructure. This includes funding and financing mechanisms, supplier management, citizen and stakeholder engagement, revenue generation, managing urban spaces and security.

City governments should consider what ‘platform’ they should make available and provide access to data sets to enable the private sector, in particular entrepreneurs, to innovate, solve problems and drive economic growth. The traditional models of the public sector leading on strategy and policy before handing over to the private sector no longer hold — a more collaborative approach is needed.

Traditional modelPrivate sector

Public sector

Strategy Planning Delivery Operate and maintain

New modelPrivate sector

Public sector

Strategy Planning Delivery Operate and maintain


Taking action

In order to plan for and successfully deliver smarter city and infrastructure programmes, there are six key steps:

01 Creating an inspiring vision and programme

► What is the vision and objectives for your project? ► Have you considered resilience and are projects future-proof? ► Have you engaged citizens and stakeholders in its development? ► How innovative is your programme?

02 Delivering a robust business case

► Have you considered social, economic, and environmental impacts? ► Do projects deliver against objectives? ► What are the anticipated benefits and can you measure them? ► How will the private sector be engaged and have alternative business models been

considered? ► Have projects been prioritised?

03 Determining appropriate funding and financing

► How will projects be funded, are they bankable? ► Are appropriate transactional structures (commercial and funding) in place? ► Have risk sharing arrangements been considered? ► Have all financial aspects of design, build, and operate been considered?

04 Delivering successful projects

► Are appropriate project and programme management structures in place? ► Does your procurement strategy identify and assess current and future risks? ► Do you have a robust and sustainable compliance, controls, and reporting

approach? ► Are you successfully managing multiple partners and contractors?

05 Assessing and managing risks

► What governance arrangements around data are in place? Who owns ‘big data’? ► Do you balance your project portfolio in a way that reduces risk? ► Have cyber-security, terrorism, and climate change risks been identified? ► Do you use the right metrics to rank your projects’ performance and risk?

06 Engaging and managing stakeholders

► Do you have a clear understanding of stakeholders, their demands and expectations?

► Have citizens been engaged from the start and are they bought in? ► Do you have a robust governance model that allows you to balance your various

stakeholders’ agendas?


How we can help

► Idea sourcing and generation

► Strategy and planning

► Innovation portfolio, Internet of Things, and value mapping

Strategy and innovation

► Access to conventional and innovative sources of capital

► Transaction structuring and return on innovation investment

► Tax advice on funding innovation, tax credits and safe partnerships

Funding and finance

► Citizen engagement

► Stakeholder management and communications

► Supplier and supply chain management

Stakeholder management

► Business case and in-market experimentation

► Economic impact measurement

► Benefits management and realisation

Case for change

► Data and digital governance

► Programme assurance

► Cybersecurity

Governance

► Data strategy and management including open data, platforms and analytics

► Digital strategy and exploitation

► Value of data

Data

► Implementation collaborator

► Services and technology integrator

► Supplier management or procurement process

Procurement

► Programme definition and prioritisation

► Programme and project management

► Programme diagnostic and assurance

Delivery


Meet the EY team

Amanda ClackPartner UK&I Advisory Infrastructure Leader

Tel: + 44 20 7951 8275 Mobile: + 44 7976 403 438Email: [email protected]

Doug JohnstonPartner UK&I Climate Change & Sustainability Services

Tel: + 44 20 7951 4630Mob: + 44 7775 705 915Email: [email protected]

Geoff Smith Executive Director Infrastructure Advisory

Tel: + 44 20 7951 3577 Mobile: + 44 7919 624 119Email: [email protected]

Philip MilnePartner Corporate Finance

Tel: + 44 141 226 9095Email: [email protected]

Patrick BossertExecutive Director UK&I Asset Intelligence Advisory

Tel: + 44 20 7980 9500Mob: + 44 7831 541 521Email: [email protected]

Maxwell WideExecutive Director Local Public Services Advisory

Tel: + 44 1179 812 241 Mob: + 44 7771 888 897Email: [email protected]

Marketing enquiries

Kevin Corcoran

Infrastructure Lead, EY

Tel: + 44 20 7951 0247Email: [email protected]

Media enquiries

Nsikan Edung

Media Relations Senior Executive, EY

Tel: + 44 7951 0896Email: [email protected]

EY Infrastructure: ey.com/uk/infrastructure

Join the debate at @EY_UKInfra

#BuildingBritain


Further reading

Further reports in our ‘Building Future Britain’ series include: ► Megaprojects ► Digital ► Intelligent Client ► Real Estate and Asset Management

Visit ey.com/uk/infrastructure to read our thought leadership and points of view.

Powering the UK 2015

Powering the UK sets out the energy sector’s contribution to the UK economy, creating jobs directly and indirectly through the supply chain.

Powering the UKEmpowering UK growth, jobs and energy users through continued investment

Executive summary

2015

All Change Please

A global paper that addresses the challenge of urban mobility. Covering major cities in the US, UK, Australia, India and New Zealand, we interviewed policy makers to better understand the behavioural forces driving mobility, and the policies that can improve it.

London’s Future Infrastructure: Who pays and how do we deliver?

The challenges and opportunities arising from the capital’s growing population, helping London to remain a global player.Source: London Tomorrow, an LCCI initiative in association with EY and supported by London City Airport.

London’s Future InFrastructure: Who pays and hoW do We deliver?

an initiative by: in association with:

supported by:

UK construction: consolidation ahead

Contractors, small- and medium-sized enterprises (SMEs) and civil engineers report increasing cost pressures which are squeezing margins. What does the future hold?

UK construction: consolidation ahead

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Information in this publication is intended to provide only a general outline of the subjects covered. It should neither be regarded as comprehensive nor sufficient for making decisions, nor should it be used in place of professional advice. Ernst & Young LLP accepts no responsibility for any loss arising from any action taken or not taken by anyone using this material.

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